Genesis deal hits the road, LNR on deck; Collins & Aikman up, Levi continues retreat

By Paul Deckelman and Paul A. Harris

New York, Oct. 14 - High yield market players were back at their desks Tuesday after a three-and-a-half-day Columbus Day holiday weekend, but traders said the market was basically treading water as people spent the day getting back up to speed.

No new offerings were heard to have priced by the close, although Genesis HealthCare Corp. was heard beginning a roadshow for its $200 million offering of new 10-year notes, while LNR Properties announced that it would sell $275 million of 10-years, probably Wednesday. Proceeds from the latter deal will be used to take out the Miami-based real estate company's existing 10½% notes (see Tenders and Redemptions elsewhere in this issue).

LNR showed up early in the session with its quick-to-market offer of $275 million of 10-year senior subordinated notes (Ba3/B+). The Deutsche Bank Securities-led deal was marketed via an investor conference call on Tuesday, and is expected to price on Wednesday.

Meanwhile the roadshow begins Wednesday for Genesis HealthCare's offering of $200 million of 10-year senior subordinated notes (B3/B-). Lehman Brothers and Credit Suisse First Boston will run the books for the he Kennett Square, Pa. healthcare services company's deal which is headed toward pricing late in the week of Oct. 23.

And in a press release that appeared well after the conclusion of Tuesday's session Metaldyne Corp. announced an offering of $100 million of 10-year senior notes. The Plymouth, Mich. firm, which makes metal-based components, assemblies and modules for transportation-related powertrain and chassis applications, will use proceeds to repay the $98.5 million balance of its 4½% subordinated debentures due 2003.

Meanwhile price talk of 7%-7¼% emerged Tuesday on DRS Technologies, Inc.'s sale of $200 million 10-year senior subordinated notes (B2/B), which is expected to price mid-day on Thursday via Bear Stearns & Co.

A buy-side source who spoke to Prospect New on background Tuesday said that the Parsippany, N.J. defense electronics supplier's deal had for a time been shopped at 7¼%-7½%.

The tight level at which the company and its investment bankers are working this deal, said the buy-sider, is characteristic of the dynamics that are presently at play in the high yield new issue market.

"It's a feeding frenzy for yield," said the investor. "Whether Treasuries are up or down doesn't matter for high yield. It's the old story: there is so much money around, and there is not enough new issue supply to sop it up."

Although by the end of Tuesday's session no official talk was making the rounds on above-mentioned LNR deal, this investor said "the talk so far is 7¼%-7 3/8%." (Not long after another market source gave pricing guidance of the LNR deal at 7¼%-7½%).

"It's a real estate finance company, and the demand for a credit that is interest rate-sensitive - given that rates could possibly back up next year - is not quite as robust as with some other issues," commented the buy-sider who added that nevertheless there ought to be sufficient demand to see the drive-by deal become fully-subscribed.

"If rates do continue to back up high yield, ironically, is seen as a safer haven because it is less interest rate-sensitive," the investor added.

In emerging markets corporates action, Tuesday, price talk of 9% area was heard on Bavaria SA's $400 million of seven-year senior unsecured notes (Ba3/BB/BB), which are expected to price on Thursday via Citigroup.

And Icici Bank Ltd. disclosed that it proposes to soon launch an offering of $300 million unsecured unsubordinated fixed rate eurobonds due 2008 (Baa3/BB) "soon," in a Monday filing with the Ministry of Finance and the Reserve Bank of India.

Secondary activity was said to be muted, though with a bias to the upside. "A lot of people weren't even in," or were just getting in and getting re-acclimated to work after the long holiday weekend, a trader said. "There was a lot of noise - but not a lot of action. It was pretty discouraging."

"Everything felt stronger, grinding higher," another trader said, although he added that the secondary market was quiet on lack of supply, with more money chasing the same old bonds still circulating around, higher.

That helped to further push up the new Universal Hospital Services 10 1/8% senior notes due 2011, which priced at par last week and moved up to the 103 level; they continued to firm Monday, to the 104.25 bid, 105.25 offered level.

Back among the established issues, Collins & Aikman Products Co. - whose bonds got smacked around badly for most of last week on speculation that its top customer, Chrysler, might put some or all of its over $1 billion of contracts with the Troy, Mich.-based auto components maker up for new bids, but which then firmed smartly during Friday's thin and abbreviated session on news that Ford will buy interior components for its new Futura model from Collins & Aikman - was seen generally firmer, carrying some of the positive momentum into the new week.

Its volatile 11½% senior subordinated notes due 2006, which were quoted having gone home Friday bid in the 75-76 area, "got as high as 77," a trader said, "though they came off their highs to end around 76-77." He did not see any movement in the company's 10¾% senior notes due 2011, which on Friday were being quoted bid in an 85-87 context.

Another trader pegged the 103/4s at 87 bid, 89 offered and the subordinated bonds at 77 bid,79 offered, although he said that represented "no real change in the pair" from Friday's levels.

Having had the big move in the credit on Friday, Monday's perceived firmness seemed to be in line with the generally firm tone of the market.

"On the whole, everything seems to be stronger once again, if you can believe that," the trader asserted. He saw Qwest Communications International Inc.'s paper up about a point "on both the long and short end," while Calpine Corp.'s 8½% notes due 2011, which had been around 72.5 bid, 73,5 offered last week, were finishing up on Tuesday at 74.5 bid, 75.5 offered. Nortel Networks Corp.'s bellwether 6 1/8% notes due 2006 were better at 100.5 bid, 101.5 offered.

He said retailing and supermarket names were "pretty well bid for - difficult to find, difficult to trade. Really tight."

He did see some softness in Winn-Dixie Stores Inc.'s 8 7/8% paper due 2008, which has softened to around 97 bid,99 offered from recent highs at 101.5 bid, 102.5 offered, but opined that bondholders really have nothing to complain about.

"They're off a little bit - but Winn-Dixies used to trade at 91-93, 92-94." He continued that "people forget, because they get lulled into where the new market is, but some of these names are up 15 points" from levels seen in late summer. "Winn- Dixies used to trade at 88-92, then one day, they went up five, went up six, went up two, to 102 bid. What the hell [about the company's weak economic fundamentals] changed?"

He chalked the movement up to "lack of supply," meaning market players looking for paper were buying whatever they could get their hands on, even at inflated prices.

He noted that Yum! Brands Inc.'s issue of 7.45% senior notes due 2005 "continues to have buyers out there, pushing it up to 106 bid from former levels at 101-102, "and that's short paper" that's scheduled to mature at par in little more than a year-and-a-half from now.

Yum!, rated Ba1 by Moody's Investors Service, is about as solid a credit as you'll find in high yield - but the trader said the price inflation has hit even bonds which under normal circumstances, wouldn't be worth anywhere near the money they are now commanding.

"You continue to see names that have any kind of yield left in them, whether it's single-B, or triple-C - not even a good double-B credit - trade up. And that's what's going on."

Another trader agreed that there was what he called "a flight to crap" going on, noting that single-B-type credits were firmer, "while the stuff more sensitive to government paper [i.e. interest rates] was lower as Treasuries "got whacked."

Among those high yield credits sensitive to interest rates (and thus, declining in tandem with Treasuries) are those in the real estate industries - but the current problems of the sector apparently won't affect the 10 ½% notes due 2009 of LNR Properties, which are to be tendered for with the proceeds of its planned new deal. "We never see them trade; they were probably all put away" to await the current planned buy-back at levels above par.

Market participants noted strength in consumer-products maker Playtex Products Inc., despite a lack of fresh news out about the company. Its 9 3/8% notes due 2011 were quoted three points higher on the session, at 99.5 bid.

One credit which failed to share in the overall firm tone of the market was Levi Strauss & Co., whose bonds were lower on Friday after the San Francisco-based apparel company reported in a filing with the Securities and Exchange Commission that it had overstated earnings in 2001 by $26 million because of accounting errors on its 1998 and 1999 tax returns. They continued to ease on Tuesday, with Levi's 11 5/8% notes due 2008 heard down more than two points, at 81 bid, while its 12¼% notes due 2012 likewise were a deuce lower at 78.5 bid.

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